Microsoft Reboots Hotmail As Outlook

Microsoft Corp. MSFT -0.57%is phasing out the email service, a pioneer of electronic mail accessed on the Web, in favor of a new-but-old brand: Outlook.

The company said Tuesday it is converting Hotmail, which competes with Google Inc.’s GOOG +0.11%Gmail and email services from Apple Inc. AAPL +2.64%and Yahoo Inc., YHOO -0.88%into a revamped Web-based email service called Outlook.com, mirroring the name of Microsoft’s dominant line of workplace email software.

Microsoft said its goal is to update a product that hasn’t changed much in years, tie it more closely to other Microsoft services and give people a single hub for contacts on email, Facebook Inc., FB -6.22%Twitter Inc. and other non-Microsoft services.

The makeover of Hotmail comes as mobile devices and social media are changing communications throughout business and family life. While email has been a mainstay for PC users since the 1990s, texting on smartphones and messaging on websites like Facebook have trumped email for many users. The new Outlook.com is designed to blend attributes of both new and old communication tools, and adapt them for hardware beyond PCs.

"We designed it to be applicable to tablets in particular," said Brian Hall, general manager of Windows, the group that oversees Hotmail.

Microsoft said a interim "preview" period for Outlook.com—whose length has not been determined—began for U.S. users Tuesday. The service, which will continue to be free, will eventually be available worldwide.

Perhaps the most visible change in Outlook.com is a simpler look compared to Hotmail. Among new features, Outlook.com can isolate automatically newsletters or other "junk" email that falls between urgent mail and spam.

Outlook.com also has a unified address book that contains contact information for people on Outlook.com, Gmail, Facebook, LinkedIn and other services. Outlook.com users can see recent status updates from Facebook, or Twitter posts when they open emails from a contact already in their address book, Microsoft said. In the future, Microsoft intends to add Skype voice and video calling as well, but no date has been set to begin that feature, Mr. Hall said.

Hotmail launched in 1996 as one of the first free online email services, helping popularize the idea of advertising-supported email. In 1998, Microsoft acquired Hotmail, which now has about 350 million active users.

The newer Gmail service, with roughly 425 million users, has become a formidable competitor. The revamped Hotmail appears to be a clear shot at Gmail, which already has some of the features in Outlook.com.

Like Google’s service, Microsoft’s Outlook.com works together with online file storage, a service called SkyDrive that Microsoft has been pushing of late as a place to store downloaded photos or documents from email attachments, among other digital files.

And in a swipe at Gmail, Microsoft said it won’t show advertisements on Outlook.com that are tailored to content of emails, an element of Google’s service that Microsoft criticizes as an invasion of users’ privacy. Microsoft does plan to generate revenue from text ads on Outlook.com, tailored to interests gathered from the topic lines of emails.

The ads will only appear in the inbox, the company said, not once an email is opened. For example, Outlook.com could display ads for ski gear to a user with emails titled "ski weekend" or subscriptions to skiing magazines. Microsoft won’t scan email content, said Mr. Hall.

"We’re not going to see anything more than what the mailman sees when he delivers your mail to a mailbox," he said.

During the preview period, Hotmail will continue to function and users will have an option to transfer to Outlook.com with their current user names. If they do so, email sent to the former Hotmail address will automatically arrive at the new Outlook.com email address.

Microsoft said over time it plans to move all Hotmail users to Outlook.com, which also will be offered to buyers of Windows and Office software. The company also is planning tight integration of the service with its forthcoming Windows 8 operating system, so that once users set up an Outlook.com account it will be automatically available on any Windows 8 PC, tablet or smartphone.

The overhaul, including integration with Facebook, makes sense as a response to the social network boom, said research analyst Matt Cain of Gartner.

"It’s not that Microsoft is playing catch up, it’s playing preservation," added Shar VanBoskirk, an analyst with Forrester Research, saying the most important factor will be features Microsoft adds to the service to hold its share of the email market against Gmail. "They will have to make iterative changes because the way we use email will change very quickly."

The name change comes as Microsoft is turning Outlook more and more into a Web-based product for consumers, as well as businesses. The next version of Microsoft’s nearly ubiquitous Office bundle of workplace software—including Outlook, Word and Excel—is being sold for the first time to consumers in an online version available for a subscription fee. Microsoft hasn’t said when it will launch the consumer-subscription offering, called Office 365, nor what price it will charge.

Like the current Hotmail, Outlook.com allows people to access a free, stripped-down version of Microsoft’s Office.

Microsoft is in the midst of overhauling many of its products, including the flagship Windows operating system, the Office suite, back-end software that powers computer servers, the Internet Explorer Web browser, and the Windows Phone smartphone software.

Email generates about $1 billion in revenue annually for U.S. companies, about twice that amount globally, most of it through advertising, said analyst Frank Gillett of Forrester. What’s more important than the revenue is the potential for steering millions of email users to other more profitable services such as Google’s search advertising business or Microsoft’s online storage and software businesses.

"The bigger goal is creating a personal repository of information," said Mr. Gillett. "Email will be an anchor property in the future of that personal cloud."